China’s largest property developer Country Garden has announced that it will sell its stake in a Dalian Wanda unit for US$428 million, as it faces mounting pressure to repay its offshore debt.
Country Garden seeks to avoid default
Country Garden, which has thousands of projects in nearly 300 Chinese cities, said it will sell its 1.79 per cent stake in Zhuhai Wanda, a shopping mall manager, back to the Dalian Wanda group, controlled by billionaire Wang Jianlin.The proceeds of the sale, which amount to 3.07 billion yuan (US$428 million), will be used to restructure the property developer’s offshore debt.
Country Garden has been struggling to service its debt obligations, as China’s real estate industry faces a severe liquidity crunch amid a government crackdown on debts and a slump in home sales. The company’s dollar bonds have fallen to less than a fifth of their face value, and its shares have dropped to an eight-month low.
The stake sale in Zhuhai Wanda is the latest attempt by Country Garden to raise funds and avoid default. Earlier this month, the company refinanced a 2019 loan facility, which surprised and unnerved investors. It also sold part of another subsidiary, Beijing Wanda Investment, to streaming company China Ruyi for US$320 million, which a source familiar with the matter said would help it to repay a separate US$400 million bond.
Dalian Wanda faces similar challenges
Dalian Wanda, once China’s biggest commercial property developer, has also been facing similar challenges as Country Garden. The group, which embarked on a seven-year campaign to own a large chunk of Hollywood from 2012, has been selling assets to reduce its debt burden and cope with regulatory scrutiny.
Dalian Wanda has sold stakes in its cinema chain, Wanda Film Holding, and its Beijing Investment unit this month, raising about US$634 million in total. However, these asset sales have failed to revive investor confidence, as doubts remain over whether the cash will actually reach bondholders’ pockets.
Dalian Wanda’s affiliate, Wanda Commercial Management Group, had a US$400 million bond due on Sunday, which raised concerns over its ability to repay the maturing debt.The bond issuer’s ratings have been downgraded by S&P Global and Fitch Ratings this month, citing its weak liquidity and high refinancing risks.
China’s property sector in crisis
The troubles of Country Garden and Dalian Wanda reflect the deepening crisis of China’s property sector, which once contributed a quarter of the country’s gross domestic product. The sector has been hit hard by a series of government measures to curb excessive borrowing, speculation, and overheating, as well as the fallout from the collapse of Evergrande, China’s second-largest developer.
Many property developers have been unable to sell apartments or refinance their dues, leading to a wave of defaults, downgrades, and distress sales. Investors have been fleeing from the sector, as they fear a systemic risk and a spillover effect on the broader economy.
The Chinese authorities have shown little sign of easing the pressure on the property sector, as they pursue high-quality growth and social stability. Some guidelines promoting urban redevelopment were published late on Friday, but they were seen as small scale and insufficient to address the sector’s woes. Investors are hoping for more support from a Politburo meeting expected this week.
